Like many established mining conferences Mines & Money Asia 2016 was down in the number of attendees and the number of exhibiting companies. However, this did not deter the core participants in this industry nor the investors that understand the cyclical nature of the mining sector. In fact, like any sector the conferences that are slow during the bottom of the cycle will present the strongest opportunities and management. These are the survivors. The Companies that will emerge and enter into the up cycle stronger, wiser and more attentive.
Every sector that goes through a severe downturn fuels the argument between “Things will never be the same” and “Things never change”. Is the mining industry forever changed or will the next bull market bring back the same irrational exuberance and belief that prices in both commodities and stocks will go up forever? Time will tell.
Regardless, one thing that is forever true, lessons are learned in failure. Hopefully the mining sector, and mining investors have learned a few new lessons but not at the expense of taking risk. It is risk taking that leads to new discoveries, new ideas and new opportunities.
Commodity prices have enjoyed upward performance year to date which has lead to many positive turnarounds in stock prices. Are we off the bottom? Its too early to call a trend. The position here is that we have scene the worst but may not see a strong, sustainable recovery for another year. Again. Time will tell.
PDAC 2016 was attended by over 22,000 people from all over the mining world. At this year’s show the sentiment remained somewhat cautious but more upbeat then last year’s conference. A noticeable drop in the number of companies attended was a reflection of the expected clean-up of companies that were under capitalized, and or under managed. The weak have been culled and the strong remain.
Despite the relatively positive performance in commodities, and upticks in many of the major mine companies, there was a noticeable absence of retail investors whom remain cautious. Many booths were hosted by the C-level management a clear sign of cost cutting (though C-level management should always make themselves available in good and bad times).
Most major companies are well off their lows for the year. Perhaps short covering, or insider buying contributing the most. Concerns for over supply and weaker demand in China remain and supply demand balances have yet to settle the market price.
This may be the key year for accumulating positions in strong balance sheets and management. Taking a long term approach to the mining sector. Deals are getting done and the market has cut back on production in most commodities. Further downward pressures on commodity prices may be coming but most equities have not been drafted up with the run in commodity prices and may not be impacted by a future decrease.
The gold price continues to defy gravity.
Received wisdom has it that gold falls in price when interest rates rise – and this cycle was set in motion by the Federal Reserve’s raising of interest rates last week. Higher rates boost income-generating alternatives and tend to spur the dollar, against which gold is a hedge.
But gold has not followed the script. It did slump the day after the Fed’s decision last Thursday, hitting a new six-year low of around $1,050, but it has since been gradually rising and was this morning trading at around $1,080 an ounce. The question now is where it goes from here.
Most investment banks predict that gold will fall below $1,000 an ounce, probably in the early months of next year. A second interest rate rise would bring home the reality of monetary policy tightening, while the dollar would surge from its already historically high levels. Inflation, another key gold hedge, is likely to stay depressed as oil prices tumble.
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Iron ore prices are down 48% year to date and BHP is looking towards copper to offset a dimming outlook for iron ore prices. Global miners such as Rio Tinto, and Vale have focused on iron ore for the majority of their profits. BHP always promoted their diversified portfolio but still recorded 52% of their operational profits from iron ore in 2014.
BHP Billiton Chief Financial Officer Peter Beaven recently stated, “Emerging economies are transitioning to consumption-led growth and that’s not a problem for copper because copper is used in the build part of growth as well as in the consumption part.”
Read the Full Article >> BHP eyes copper growth to offset dimming iron ore outlook
We have all heard statements made by various experts – many self proclaimed – about when the world’s resources will run out. “Peak Oil” an event based on M. King Hubbert’s theory, is the point in time when the maximum rate of petroleum extraction is reached, after which the rate of production is expected to enter terminal decline. The same theory has been applied to many other commodities, and resources. This infographic, by Visual Capitalist, shows you just how much is left.
Key point with finite resources. Either prices have to go up, or major new discoveries have to be made. The latter requires investment in exploration. Unfortunately, there has been a drying up of capital for exploration over the last three years.
A particular type of coal – called metallurgical coal or coking coal – is used in the process of manufacturing of steel. After reaching a six-year low in its price and recent industry cutbacks to production, metallurgical coal is showing classic signs of a resource that is ready for a cyclical uptrend.
Steve Yuzpe, CEO of Sprott Resource Corp., specializes in finding long-term value plays in the private equity sector. He says metallurgical coal is an out-of-favor sector, and by his estimation, it is cheap and the price is probably due to improve.
Read the full article at Sprott’s Thoughts – ‘Met Coal’ Could Be Reaching a Cyclical Low